Jeffrey Alan Miron

Economists and Self-Interest

A recent blog exchange begun by Alex Tabarrok, picked up by Brad Delong, and extended by Greg Mankiw raises the question of whether academic economsits are willing to put their money where their collective mouths are.

The issue is that economists broadly support expanded legal immigration.  Alex suggested this is partly because economists are ethical.  Matthew Yglesias, even while applauding the support for more legal immigration, expressed skepticism about economists' true motives.  He suggests economists do not fear an influx of low skill Mexicans because economists do not compete in the marketplace with low-skill Mexicans.  The true test of economists' ethics, Matthew argues, is whether we would expand legal immigration for highly trained ecoomists, those who would compete for our jobs.

Brad, Greg, and I agree: expanded legal immigration for economists, as well as scientists, engineers, and other highly skilled professionals, is good.  Raise the H1-B quota a lot.  Better yet, eliminate it entirely.

Then let's discuss another aspect of economists' self-interest.

Economists broadly, and libertarian economists in particular, argue for eliminating or reducing pratically every government program.  Economists have little to lose personally from such policy changes. 

Yet economists broadly, and even many libertarian-leaning economists, support government funding for economics research.  Is that position defensible?

My answer is no.  Economic research is a good thing, and knowledge is a public good that might be underfunded by the marketplace.  But economists cannot argue convincingly against other bad government policies unless we hold ourselves to the highest possible standard. 

Give back those grants.  Give them back now.

Congressman Wants to Ban Online Gambling

A Virginia congressman wants to ban online gambling:

Today, the House Judiciary Committee will mark up a bill introduced by Rep. Robert W. Goodlatte (R) that would ban much online gambling, including bets on sporting events and games of chance -- namely poker, which has enjoyed a boom in recent years.  ...

The bill would update the Federal Wire Wager Act, which prohibits gambling over telephone lines but may not apply to Internet gambling because not all Web traffic travels over phone lines. It also would force banks to block transactions related to online gambling and would empower law enforcement agencies to force Internet service providers to remove or disable links to gambling sites.

What an incredibly stupid idea!  As usual, the right choice is less government not more: repeal the Federal Wire Wager Act.

Gun Makers Win; But for the Wrong Reason

A superior court judge in Washington, D.C. ruled earlier this week that a law suit filed by the D.C. government against gun manufacturers could not proceed due to a recent federal law banning such suits:

In a 37-page opinion, Judge Brook Hedge wrote that the city and the federal government had two competing policies, and only one could prevail.

The D.C. Council, she wrote, had determined that assault weapons have "little or no social benefit but at the same time pernicious consequences for the health and safety of District residents and visitors." Congress, however, "has trumped local law by passing legislation to protect the profits of such manufacturers," she wrote.

The suit, filed by the city and by victims of gun violence and their families, aimed to hold gun manufacturers liable for the flow of firearms into the District and for the carnage created by the sale of illegal weapons.

Without question, the suits against gun manufacturers make no sense; they attempt to hold the wrong people accountable for gun violence, and they are mainly motivated by greed on the part of cities and trial lawyers.   So, dismissal of the D.C. suit is welcome, in and of itself.

But gun manufacturers, and businesses generally, should resist the temptation of using federal law to protect themselves against state and local foolishness.   Such interventions are not only inconsistent with what the Commerce Clause should mean; they are another step down the slippery slope of federal regulation of everything.   Congress will not always be  sympathetic to gun owners.  The next one might not only take back the current law but add federal lawsuits to the fire.  And the potential for mischief in other areas is huge.  The right position is to oppose all federal instrusion, even if such intrusion seems helpful in the short term.

Becker's Views on Immigration

Nobel-Prize winning economist Gary Becker has a new blog on immigration.  Becker writes:

First, the United States can and should greatly increase the number of legal immigrants accepted, with most of the emphasis on skilled immigrants.

Second, it is not politically possible to send back the millions of illegal immigrants that are here, but other steps might be taken with regard to their eligibility for various government programs.

Third, if a feasible enforcement policy could be worked out, employers should be punished for hiring undocumented workers in order to reduce the incentives for many more illegal immigrants to come here.

I agree with Becker that the U.S. should increase legal immigration.  I also agree it is politically infeasible to send back millions of illegal immigrants.  And it would be a costly task with limited success in any case.

On employer sanctions, I part company with Becker.  To begin, I do not believe there is a "feasible" enforcement policy if feasible means at least moderate effectiveness and at worst moderate costs. The number of employers is enormous, and the scope for evasion is immense. So employer sanctions punish employers who respect the law with minimal impact on illegal immigration.

Worse, employer sanctions shift attention from the more fundamental problem of wage differentials.  Any real solution to illegal immigration requires improved economic growth in developing countries.   The U.S. cannot do much to promote this in the short run, but it can make a difference over the long haul:  promote free trade by unilaterally eliminating all tariff barriers and agricultural subsidies, and legalize drugs.   

The National Endowment for the Arts

The National Endowment for the Arts recently celebrated its 40th birthday.   This is exactly 40 too many.   Government funding for the arts has no convincing justification, and it generates unnecessary acrimony by permitting politically inflammatory uses of taxpayer funds.

The economic case for arts funding is weak because the private sector has ample incentive to produce art without subsidy.  In contrast to pure knowledge, art is what economists call "excludable," meaning the producer can keep others from using his creation unless they pay for the privilege.  A painter or sculptor, for example, can sell his work to a museum that charges admission and thus generates a return for the artist.   This is in contrast to the creation of a new medicine, where absent patent protection the producer may have little ability to prevent copying by others.

A possible counter argument is that while art is normally excludable, it is still "non-rival," meaning many persons can consume it simultaneously.  This is in contrast to, say, a hamburger, where if I consume it, you cannot.    For example, many people can view the same painting simultaneously, and up to the capacity of the museum, each imposes little diminution in others' enjoyment of the painting.  Thus if a particular piece of art is unique, the museum is, for this piece of work, a natural monopolist who might restrict supply -- i.e., set the admission price too high -- thereby inefficiently restricting the viewing of the art.

This perspective is reasonable in a few instances, but the vast majority of art is not unique like the Mona Lisa or the David.   And so long as museums can price discriminate, they can extract most or all of the consumer surplus and will there produce the efficient amount of viewing.  For example, museums can charge a high price initially to those desperate to see a new work and then a lower price later to less eager viewers.

Even if the natural monopoly issue arises for a few works of art, moreover, the political acrimony generated by the NEA is costly.  From time to time the NEA funds artists whose work is offensive to a significant number of Americans (e.g., the Piss Christ, a picture of a crucifixion sitting in a glass of the artist's urine), and these taxpayers object to having their tax dollars spent in this way.   The ensuing political battles leave everyone angry, all over a paltry few hundred million dollars that is tiny compared to private funding for the arts.

Do We Need the CIA?

The Senate conducted confirmation hearings last week for President Bush's nominee to head the CIA, General Michael V. Hayden.  The questions focussed on how Hayden might "fix" the CIA in light of its recent difficulties.   These include low morale, a rash of resignations, and the controversial firing of a high-level employee for leaking information to the press.

A better question is whether the U.S. needs the CIA at all.  This is different from asking whether the U.S. needs intelligence; the military can and does peform important aspects of that job.   The right question is instead whether having an "independent" intelligence agency provides a more complete or balanced picture, and at what cost.

Given the secret nature of most CIA activities, it is impossible to know what security problems the CIA has averted over the past half century (the CIA was created in 1947).  But we do know the CIA has been involved in serious breaches of its legal obligations and duties: spying on U.S. citizens, testing LSD on unknowing participants, funneling money to the Iran Contras.   The CIA has also failed disastrously in its intelligence in at least two highly publicized cases, the Bay of Pigs invasion of Cuba in 1961 and the Iraq WMD situation in 2003.  More broadly, the CIA has undertaken interference with the internal affairs of other countries, such as Chile during Allende regime or the recruitment of an Army in Laos in the 1970s.

No agency can have a perfect track record.  But most of what we know about the CIA's activities provides a grim assessment.  Congress in principle conducts appropriate oversight, but again we do not know whether this is objective and thoughtful or highly politicized.

If intelligence is left to the military, many of the same problems arise, but with two differences that plausibly tilt the balance in a good direction.   The military does not have a strong incentive to create new intelligence risks or expand the scope of its activities to justify its existence.   And the military's internal budget contraint--the money its devotes to intelligence cannot support weapons or troops--would suggest some degree of internal evaluation about which kind of activity best promotes national security.

Another Success Story in the U.S. War on Drugs

This article speaks for itself.  It begins as follows:

Six years and $4 billion into the US-backed campaign to wipe out cocaine at its source, Colombia appears to be producing more coca than when the campaign started, according to US government estimates.

As Congress opens debate this month on another $640 million for next year for Washington's most ambitious overseas counternarcotics effort, a growing number of critics say the costly program has neither dented the cocaine trade nor driven down the number of American addicts. Two of the program's major missions -- to dramatically reduce coca growing in Colombia and provide alternative livelihoods for drug farmers -- have fallen far short of hoped-for goals.

Onetime supporters, including some Republican lawmakers who championed the plan at its creation, are now demanding to know why the most expensive US foreign aid program outside the Middle East and Afghanistan is not winning the war on drugs.

Libertarian Monetary Policy

Greg Mankiw's blog calls our attention to a recent paper by Alan Blinder on monetary policy.   Blinder is a professor of economics at Princeton and a former member of the Federal Reserve Board.   Blinder's paper poses sixteen questions about monetary policy and answers twelve of them.  I repeat a subset here along with my answers.   In so doing I take as given that a central bank exists, but I comment on this issue at the end. 

1. What is the proper ojective function for monetary policy?

Providing a low, stable inflation rate.

2. How transparent should the central bank be?

As transparent as possible.

3. Should the central bank be an inflation taregeter, as that term is comomonly used?

Yes.

8. Is "fine tuning" possible after all? And if so, should central bankers attempt it?

No, and no.

9. Should central banks lead or follow the financial markets?

Neither; ignore them other than as a signal of future inflation.

10. Should central banks in floating exchange rate regimes intervene in the foreign exchange market?

No.

14. How should the central bank deal with asset-market bubbles?

It should not; see question 9 above.

Interestingly, recent monetary policy is overall consistent with my responses.   And the past two Fed chairmen, Alan Greenspan and Ben Bernanke, are both libertarians.   Greenspan was not as big on transparency as I would like, but Bernanke has emphasized already that he supports greater transparency.

On the question of whether economies need central banks, I note simply that the U.S. did not have a central bank until 1914, yet its economy grew at an impressive rate over the period up till 1914.

Stealing from the Oil Companies

The House has passed a bill undoing agreements the Federal government made with oil and gas companies over exploration in the Gulf of Mexico.  According to the New York Times:

In an attempt to revoke billions of dollars worth of government incentives to oil and gas producers, the House on Thursday approved a measure that would pressure companies to renegotiate more than 1,000 leases for drilling in the Gulf of Mexico.

The measure, approved 252 to 165 over the objections of many Republican leaders, is intended to prevent companies from avoiding at least $7 billion in payments to the government over the next five years for oil and gas they produce in publicly owned waters.

This is insanity.  It is possible the original contracts between the government and oil and gas producers were giveaways, that is, more generous than necessary to promote the efficient amount of oil and gas exploration. In that case, Congress should not make such sweetheart deals in the future.

But reneging on existing deals, even bad ones, is disastrous.  If the government can, in effect, steal from private companies whenever that generates good PR for politicians, the incentives for investment and exploration diminish markedly.  And that means lower productivity, fewer oil reserves, and reduced welfore for everyone in the long term.

Privatizing National Monuments

A recent study by the National Trust for Historic Preservation finds inadequate management at many western monuments and historic sites.  Concering the Canyons of the Ancients National Monument in Colorado, for example, the Washington Post summarizes as follows:

To keep order amid all this activity, the responsible federal agency, the Bureau of Land Management, employs one ranger to patrol the entire national monument -- an expanse of mountains and lowlands covering 256 square miles, about four times the size of Washington, D.C.

That discrepancy between land area and staff size is common for many of the culturally and historically important sites across the western United States that are managed by the BLM, according to a study due to be issued Tuesday by the National Trust for Historic Preservation.

An alternative approach to public ownership and management these lands is privatization: selling the land to private owners. 

This approach ensures efficient use of the land areas in question.  If the most profitable use is a cultural or historical monument, private owners will choose that option.  If the most profitable use is oil and gas exploration, private owners will choose that instead.  And if the most profitable use is a scenic area for hikers, private owners will choose that.

A potential compromise is the leasing of minining or timber rights on public lands, as occurs now to some degree.   This approach is part of the problem, however; private interests that lease these rights do not have adequate incentive to protect the long-term value of the land. 

Privatization does mean that some cultural or historical areas might disappear, and conservationists will decry this outcome.  But privatization is still a better approach than current policy, which gives the commerical use of these lands far too little weight.  Thus, the amount of land "protected" from development has grown enormously and faces no reasonable balancing.  It is time to reverse that situation.